The information in this article is up to date through tax year 2019 (taxes filed in 2020).
Retiring abroad could be the adventure of your lifetime. Here are ten things to ask yourself before taking the leap.
What is the cost of living where you’re headed?
You’ll need enough money set aside to cover your basic needs wherever you decide to settle. If you have your sights set on a country where the cost of living is lower than your home in America, your retirement dollars will go further. Consider average cost for rent, food, transportation, medical care and insurance, for starters. A hot spot like London may not suit your retirement economics, but a quaint town in Portugal just might.
What is the average cost of medical care abroad?
In some countries outside of the United States, health care is less expensive for individuals. Mexico and France are just two examples of nations known for their affordable health care options. If you’re expecting high medical bills (and even if you aren’t), research the location you are considering retiring to and find out what their healthcare policy is. It could save you a significant amount of money.
Will you have to pay income tax to the host country?
Depending on the laws of the country you move to, you may need to file and pay taxes to that government. And of course, you are still expected to file a federal return here in the U.S. The good news is, if it turns out you are required to pay income taxes to the foreign government as well, you might qualify for the Foreign Tax Credit here at home.
Will you give up your U.S. citizenship?
You are not required to renounce your citizenship to retire abroad. But should you decide to waive it, you can’t reapply to be a citizen. The decision is permanent.
What does giving up citizenship mean for your tax obligations in the U.S.?
Renouncing your U.S. citizenship does not automatically cancel your tax obligations. In fact, you will be treated as a U.S. citizen for tax purposes until you file one copy of Form 8854 with the IRS and another copy with the Department of Treasury.
Form 8854 asks for general information about your host country, your U.S. tax liability for the previous five years, and your net worth on the date of your expatriation. Depending on your answers, you may be required to pay Exit Tax.
Exit Tax, if you are required to pay it, is based on your net worth. It is calculated as if you had sold all your assets on the day of expatriation. The value is then taxed at capital gains tax rates.
How will you manage your money from abroad?
Before you leave, make sure you have online access to all your assets, including bank accounts, investments, and other financial institutions. Double check that you won’t experience any holds on your accounts, and definitely tell your bank that you are moving in advance. Talk to other retirees in the country you are considering to see what other avenues are available to help you manage your money.
How does retiring abroad affect your 401k?
Make sure you know how your 401k will be taxed in your new country before retiring abroad. Each place has different rules. Depending on whether or not you renounce your U.S. citizenship, you may also end up owing double taxes it.
Will you buy or rent a property abroad?
If you’re new to a country, it is hard to know what the housing market is like in different areas, and what it is will be like over time. What’s more, purchasing a home means paying property taxes – and those could be significant depending on your country of residence. Consider renting instead. Take some time to get your bearings, do your research, and save some money. Plus, if you change your mind about location, renting can make it easier to pick up and move in a short time.
Do you need a special visa to retire abroad?
Most countries require you to obtain a visa if you plan on sticking around for a long-term visit (more than just a typical vacation). Several countries offer a retirement visa that you can apply for. Research the laws about visas in your desired country before committing to the move. And apply for the visa before renting long-term property so you can alter your plans if you are not approved.
Are you ready for an adventure?
Moving abroad can be beneficial for more than just your wallet. Learning a new language and navigating a new country can be good exercise for your brain. Use this opportunity to flex your cognitive and social skills. Also, traveling during retirement can improve your mood and keep things fresh and exciting. If you’re willing to take a risk and try something new, then consider retiring abroad.